What Are HOA Assessments?

If you live in a planned community with covenants, you most likely have to pay homeowners' association (HOA) fees and, at times, special assessments.

How an HOA Sets the Fees and Assessments

An HOA has a board of directors. Each year, the board develops a budget for the community and decides how much to charge each unit or household as a monthly (or, in some cases, yearly or quarterly) HOA fee.

But the board's predictions aren't always accurate. Occasionally, the HOA might need to come up with more funds. In that case, the board usually has the authority to impose a special assessment to cover the one-time expense of a major repair or improvement.

Dues and assessments are often collectively referred to as "assessments."

What Is the Difference Between an Assessment and a Special Assessment?

Generally, each unit or household in an HOA must pay a monthly, quarterly, or yearly HOA fee. This fee is often called an "assessment."

The monthly, quarterly, or yearly HOA fee consists of two parts:

• An amount to cover current-year operations. Part of the fee will be designated for current-year operations, typically including landscaping, snow removal, pool maintenance, insurance, and water.

• An amount that goes into reserves. The remaining portion of the fee is placed into reserves for long-term repairs and replacements, like a new roof for the community center or a new road, or to cover the cost of building additional parking lots. Having ample reserves ensures that the HOA has money available to pay for high-cost repairs when they come due.

So long as the HOA board accurately predicts which repairs will come due and when, the dues should cover the current operating expenses and long-term maintenance.

How Special Assessments Work

However, sometimes, the fees might not provide enough to the reserves to cover long-term repairs. For example:

• the operating expenses might be higher than expected
• some homeowners might not pay their HOA dues, or
• an unexpected catastrophe or natural disaster might happen, causing damage that insurance doesn't cover.

In these instances and others, the HOA can usually charge homeowners a "special assessment."

HOA Liens and Foreclosure

Most HOAs can place a lien on the homeowner's property when the dues or special assessments go unpaid. Once the HOA has a lien on a homeowner's property, it may foreclose as permitted by the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and under state law.

Talk to an Attorney

If you're facing a foreclosure due to unpaid HOA assessments, consider talking to a foreclosure attorney in your state to discuss all legal options, like working out a payment plan with the HOA, available in your particular circumstances.